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Michael Roberts Blog MMT 2 – the tricks of circulation

Mike Norman February 3, 2019 Mike Norman Economics

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Confused.  Michael Roberts needs to read more of the MMT primary literature if he wants to critique MMT in any detail. Nevertheless, MMT starts with the conviction that it is the state (not capitalist commodity relations) that establishes the value of money. Not quite.MMT starts with the observation of Warren Mosler that under the current monetary system, a contemporary sovereign currency is a public monopoly, with the currency issuing government acting as the people's representative — popular sovereignty and all that. A monopolist is the price setter. The purpose of currency issuance is to provision the government in order to serve public purpose, public purpose being a political issue in a popular democracy.While all currency sovereigns are the same operationally with respect to

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Confused. 

Michael Roberts needs to read more of the MMT primary literature if he wants to critique MMT in any detail.
Nevertheless, MMT starts with the conviction that it is the state (not capitalist commodity relations) that establishes the value of money.
Not quite.

MMT starts with the observation of Warren Mosler that under the current monetary system, a contemporary sovereign currency is a public monopoly, with the currency issuing government acting as the people's representative — popular sovereignty and all that. A monopolist is the price setter. The purpose of currency issuance is to provision the government in order to serve public purpose, public purpose being a political issue in a popular democracy.

While all currency sovereigns are the same operationally with respect to the currency, authoritarian governments are not restricted by public opinion and domestic political considerations. This includes oligarchies masquerading as popular democracies. Not all "democracies" are popular democracies, in spite of appearances (elections).

Therefore, power is an issue. Almost all contemporary states fall in this category to some extents at least. This needs to be addressed through policy changes that effect institutional change, e.g., to preempt rent extraction by special interests.

States that have given up currency sovereignty by either using a currency they do not themselves issue, or undertake obligations in a foreign currency are different operationally in that they are not monopoly providers of their currency. This includes the American states, which ceded currency sovereignty to the federal government, and the nations of the EZ, which ceded it to the ECB. Comparing currency sovereigns to currency issuers is like adding apple and oranges. Note that commercial banks do not issue currency. They extend credit denominated in the currency and are delegated a special relationship with the central bank as currency issuer that acts on behalf of the state as the government's fiscal agent.

In a modern monetary production economy (as described by Keynes, for example), this is how it begins — with "money." MMT agrees with Marx's observation that capitalism is based on using money to make more money — M-C-M', instead of starting the Robinson Crusoe just-so story about barter. This means that money is not neutral and that the loan funds theory is wrong. However, MMT defines "money" carefully. Failure to grasp these key distinctions will result in missing MMT.

Failure to begin at the beginning is to misunderstand MMT and sets up a straw man argument that is DOA. As Aquinas said, paraphrasing Aristotle, "A small mistake in the beginning is a big one in the end." Most economic theory stumbles out of the gate by getting this wrong.


However, it is even more complicated. Good critique is far from simple in just about any field. For example, Michael Roberts is a Marxist economist. There are many interpretations favorable to Marx among Marxist and Marxian economist. There is no agreed upon "standard" interpretation of Marx that all Marxists and Marxians accept. Roberts's view is one among many. In addition, Marx has been criticized widely by just about everyone other school of economics and member of a school sometime disagree over how Marx should be criticized. Pinning Marx down to a particular interpretation has proved impossible. 

The same might be said of Keynes, as any other thinker, theory or school. There are probably a dozen interpretations of what quantum mechanics "means." So criticizing across interpretations is difficult unless one truly understand the view that one is opposing. This is difficult if one doesn't see the world in that way. Then cognitive bias takes over.

This is not argue for relativism in interpretation. Some critiques are better than others, even though none has carried the day. so, it is not like all critiques standing on the same level. Some are very tightly argued, although disputed by other experts. Some are essentially emotional rants. There is broad middle range. All but the tightly argued ones can put aside as a waste of time to deal with. Tight argument implies command of the field and good documentation.

What distinguishes good critiques from less satisfactory is the level of knowledge of the work a critic exhibits in a critique through citations and evidence. Obviously, this requires deep acquaintance with the material — all of it.

Critique of Smith, Ricardo, Marx and followers, Keynes and followers, as well as key figures in the neoclassical and Austrian schools, etc., has grown to exponentially, to the degree that no economist can claim to be an expert in economics as a whole, any more than a philosopher can claim command of all the literature, or a historian. There is a reason for specialization.

The criticism of MMT is just beginning however, and the body of literature generated by those considered by other MMT economists to be members of the school is not so large as to be unmanageable, although it is much more than weekend reading. Shooting from the hip doesn't cut it, obviously, but neither does lack of attention to detail in the professional word.

So I think two things need to happen. 

First, critics need to educate themselves better and forget about quoting blogs, at least chiefly. I mention some sources below.

Twitter? Forget about it. The level of "debate" there is silly and is resulting in bad blood. The only approach that makes sense is citing professional sources. This brings up the second point.

Secondly, MMT economists should be ready to counter points that have been addressed in the literature by citing the literature. This would save everyone a lot of time and raise the level of the debate. I have yet to see an "objection" that was not previously addressed, usually in depth.

Thirdly, it needs to be recognized that different approaches are based on different assumptions, both substantial and procedural, resulting in different frameworks. These frameworks tend to be ideologically based. This implies that there are also hidden assumptions involved as unstated presumptions. This needs to be clarified so that the debate is on the same page, or the parties agree to disagree over the foundations. Some debates are inconclusive since the parties see reality through different lenses. Moreover, changing glasses would destroy one's intellectual investment.

Bill Mitchell and Randy Wray's introductory text on MMT has been available for some time. Their MMT macro textbook is due for imminent release available for pre-order. Randy's MMT primer has been available for a long time and is no in its second edition. His 1996 MMT book introducing MMT is also germane. 

Warren Mosler is acknowledged as the founder of MMT with his Soft Currency Economics. He wrote a popular book on understanding MMT, too, The Seven Deadly Innocent Frauds of Economic Policy. Warren Mosler has also put forward several policy proposals based on MMT principles and his experience in banking, finance, etc. They serves as a practical demonstration.

Eric Tymoigne has written a book on money and banking, The Financial System and the Economy, based on MMT insights and principles.

MMT working papers can be found online at Levy Institute

A critic should at least be familiar with these sources. It's not an overwhelming task. In most fields, failure to do so is regarded as unprofessional and carries reputational risk.

Michael Roberts Blog
MMT 2 – the tricks of circulation
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Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.
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